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Quantitative Easing: A Sceptical Survey

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  • Christopher Martin

    ()
    (Department of Economics, University of Bath, UK)

  • Costas Milas

    ()
    (Management School, University of Liverpool, UK; The Rimini Centre of Economic Analysis, Italy)

Abstract

Evaluation of quantitative easing (QE) is difficult as it is only used in response to severe and unusual economic difficulties. Despite this, we argue that two main conclusions can be drawn from a sceptical reading of the evidence. First, large-scale asset purchases reduce government bond rates, especially at the longer end of the yield curve. However, this effect may be temporary and is small if bond rates are already low, while initial waves of QE are more effective than subsequent programmes. Second, QE appears to have been effective in late 2008 and 2009, preventing even larger declines in output and inflation than were experienced. We argue that the literature is limited, relying on similar methodologies and largely originating in central banks. Exploration of alternative approaches to QE would be useful in widening an evidence base that is currently too narrow.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 73_12.

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Date of creation: Nov 2012
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Handle: RePEc:rim:rimwps:73_12

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Keywords: quantitative easing (QE); financial crisis;

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References

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  1. G. Peersman, 2011. "Macroeconomic Effects of Unconventional Monetary Policy in the Euro Area," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/734, Ghent University, Faculty of Economics and Business Administration.
  2. Jonathan H. Wright, 2011. "What does Monetary Policy do to Long-Term Interest Rates at the Zero Lower Bound?," NBER Working Papers 17154, National Bureau of Economic Research, Inc.
  3. Francis Breedon & Jagjit S. Chadha & Alex Water, 2012. "The Financial Market Impact of UK Quantitative Easing," Working Papers 696, Queen Mary, University of London, School of Economics and Finance.
  4. Urszula Szczerbowicz, 2011. "Are Unconventional Monetary Policies Effective?," Working Papers CELEG 1107, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  5. Hess Chung & Jean‐Philippe Laforte & David Reifschneider & John C. Williams, 2012. "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 47-82, 02.
  6. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
  7. Bridges, Jonathan & Thomas, Ryland, 2012. "The impact of QE on the UK economy – some supportive monetarist arithmetic," Bank of England working papers 442, Bank of England.
  8. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
  9. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, 02.
  10. Annette Vissing-Jorgensen & Arvind Krishnamurthy, 2011. "The Effects of Quantitative Easing on Long-term Interest Rates," 2011 Meeting Papers 1447, Society for Economic Dynamics.
  11. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
  12. George Kapetanios & Haroon Mumtaz & Ibrahim Stevens & Konstantinos Theodoridis, 2012. "Assessing the Economy‐wide Effects of Quantitative Easing," Economic Journal, Royal Economic Society, vol. 122(564), pages F316-F347, November.
  13. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  14. André Meier, 2009. "Panacea, Curse, or Nonevent? Unconventional Monetary Policy in the United Kingdom," IMF Working Papers 09/163, International Monetary Fund.
  15. Stefania D'Amico & Thomas B. King, 2010. "Flow and stock effects of large-scale Treasury purchases," Finance and Economics Discussion Series 2010-52, Board of Governors of the Federal Reserve System (U.S.).
  16. Baumeister, Christiane & Benati, Luca, 2010. "Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound," Working Paper Series 1258, European Central Bank.
  17. Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
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Cited by:
  1. Francis Breedon & Jagjit S. Chadha & Alex Water, 2012. "The Financial Market Impact of UK Quantitative Easing," Working Papers 696, Queen Mary, University of London, School of Economics and Finance.
  2. Issing, Otmar, 2013. "A new paradigm for monetary policy?," CFS Working Paper Series 2013/02, Center for Financial Studies (CFS).
  3. Rod Tyers, 2013. "International Effects of China's Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2013-44, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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